Third Point LLC (“Third Point”) is a registered investment adviser with approximately $8 billion under management. We are writing to inform you that certain investment funds we manage have acquired a 5.1% interest in Yahoo! Inc. (the “Company” or “Yahoo”), bringing our holdings of common stock and currently-exercisable equity options to 65,000,000 of the outstanding shares, and positioning us as the Company’s third largest outside shareholder.

This letter details our principled demands for sweeping changes in both the Board of Directors (the “Board”) and Company leadership, and outlines the hidden value of Yahoo, which has been severely damaged – but not irreparably – by poor management and governance.

6) The guys at M3 are the smartest bank analysts I’m aware of. Their latest letter, shared with permission, in which they show that banks are engaged in extend-and-pretend and are juicing earnings by reducing allowances for loan losses:

On August 23, the FDIC released its second quarter 2011 Quarterly Banking Profile, a statistical piece

summarizing the state of the banking industry. The most recent edition of the Profile reveals that the

nonaccrual loans peaked, and today, there is an additional $1 of restructured loans for every $3 in

nonaccrual assets.

7) An article about how Warren Buffett, Bruce Berkowitz and Francis Chou are investing in US financials (as are we – and, like Chou, we like the TARP warrants, and own those of JPM and WFC):

A pretty simple investing formula thus becomes: buy the banks that have survived immediately after a blow-up, when everyone hates them. Hold them for a few years until earnings and balance sheets recover. Then sell them when most investors are no longer afraid of the sector.

That formula seems to be exactly what Bruce Berkowitz of the Fairholme Funds and Warren Buffett are ascribing to. Both Berkowitz and Buffett bought into the banking sector in a large way in the early ’90s after the last major banking collapse. Specifically, both made large investments in Wells Fargo (WFC) when the general consensus was that the California real estate collapse was going to destroy the company.

Now both investors are doing so again, with their headline investment being Bank of America (BAC). They buy when the banking sector is still covered with the wretched smell of the last disaster. They will sell when headlines improve and other investors lose their fear.

Another well-respected and risk-averse Canadian value investor named Francis Chou has also invested heavily in the American banking sector in the past year. Chou however has decided to try and amplify his returns by not simply investing in shares of Bank of America and other banks directly, but rather by investing in the warrants of these companies that were issued to the US Treasury during the TARP program.

8) Amidst all the bearishness on Europe is this promising development:

As leaders in Europe try to contain a deepening financial crisis, they are also increasingly talking about making fundamental changes to the way their 17-nation economic union works.

The idea is to create a central financial authority — with powers in areas like taxation, bond issuance and budget approval — that could eventually turn the euro zone into something resembling a United States of Europe.

Officials have been hesitant to publicly endorse such a drastic change. But privately they say the issue has gained urgency in recent months, as it has become clear that Europe’s current approach, which requires unanimity on any significant moves, is unwieldy and inefficient. The idea is being promoted by some global financial officials, who worry about the risks that continued uncertainty in Europe poses to the global economy.

The credit rater Standard & Poor’s may have been late to throw Sino-Forest Corp. (TRE) into the wood chipper when it withdrew its opinion on the company’s debt this week. At least it wasn’t last.

The end seems near for Sino-Forest. The Chinese-Canadian timber company’s bonds are priced for a default. Securities regulators in Canada have accused the company of fraud and suspended trading in its stock. One question lingers: Which of the company’s paid opinion merchants will be the last to step aside? Will it be a credit rater? Or will it be the company’s auditor, Ernst & Young LLP in Toronto, which has yet to rescind any of its reports on Sino-Forest’s finances?

So far Ernst looks like the favorite, with only one rating company left in the hunt. Think of it as a contest between giant tortoises to see which one is slower. This time-honored ritual — of market gatekeepers waiting to blow the whistle until long after a scam has been exposed — has become so familiar, we might as well revel in the spectacle.

Fitch Ratings withdrew its junk rating on Sino-Forest on July 14, six weeks after the short-selling research firm Muddy Waters LLC released a lengthy report accusing the company of fraudulently overstating its timber holdings in China. S&P pulled its rating this week after downgrading the company to CCC-, three levels above default, citing “heightened information risks.” That’s a euphemism for “we have no idea what’s going on here.”

Left Behind

This leaves just Moody’s Investors Service and Ernst, both of which, like S&P and Fitch, are paid by the same companies on which they render opinions. Moody’s this week downgraded the company three steps to Caa1, its fifth-lowest mark. That’s well into junk territory. So at least Moody’s is on record saying that Sino-Forest is a very high credit risk.

Ernst is still clinging to its position that Sino-Forest’s books are clean, under the accounting profession’s usual pass- fail standard. Beyond that, the firm refuses to speak publicly about its audit work for the company, whose board includes two former Ernst partners.

There’s every reason to believe Muddy Waters’ call was spectacularly correct. Once again a Big Four accounting firm seems to have been caught with its pants down, having told the investing public for years that a multibillion-dollar enterprise’s numbers could be trusted, only to see its imprimatur discarded by the markets and its conclusions upended by government investigators. Even the lowly credit raters, notorious for being slow to pull the trigger on dying companies, have been quicker on the draw this go-around.

10) It’s very interesting (and unusual) to see how vocal Buffett has gotten on this. He must really believe that our government is being hijacked by the Tea Party:

Warren Buffett, the self-made billionaire and son of a former Republican congressman, has widened the rift with his father’s party by pressing for tax increases on the wealthy and reinforcing ties with President Barack Obama.

Buffett endured scorn from Republicans this month after he called the Tea Party approach to budget talks “insane” and proposed raising $500 billion by taxing the richest Americans. Buffett, chief executive officer of Berkshire Hathaway Inc., was cited as an exemplar by Obama at least three times since July.

“Whenever Buffett says something, you can almost put money on the fact that within the next 48 hours, Obama’s going to use the phrase, ‘My good friend Warren Buffett says blah, blah, blah,'” said David Rolfe, chief investment officer of Berkshire shareholder Wedgewood Partners Inc. “If you’re going to tread into those waters, you need to expect the brickbats.”

Buffett’s criticism contrasts with praise he offered in the last decade to former California Governor Arnold Schwarzenegger and the political appointees of former President George W. Bush. The Tea Party movement, which made gains in last year’s elections, was faulted by Buffett for silencing other Republican voices. Buffett plans to hold a Sept. 30 fundraiser in New York City for Obama’s re-election bid, Democratic officials said.

We thought it would never happen. When we reported that comedian Ana Gasteyer had spilled the beans on a new Ben & Jerry’s ice cream flavor based on aSaturday Night Live skit that pokes fun at NPR, we thought it would never happen.

As we explained in June, “in case you don’t get the reference, the skit is a hilarious commentary on NPR’s, um, uniquely soothing sound. [Alec] Baldwin plays Pete Schweddy, a guest on a fake NPR show called Delicious Dish. Pete makes holiday treats like cheese balls, popcorn balls, rum balls and his famous Schweddy balls. The skit is an exercise in double entendres.”

We talked to Ben & Jerry’s spokesman Sean Greenwood and asked him, “What are you guys thinking?” We were imagining someone who’s never seen the skit walking the grocery aisles and stumbling on the flavor.

Greenwood laughed.

“We’ve always been a company that has had a sense of humor,” he said. Sometimes, he said, they spend time discussing serious business and other times “we just do fun.”

“This is just plain silly,” he said. And it tastes pretty good, he promised.

The flavor is made up of “vanilla ice cream with a hint of rum and is loaded with fudge covered rum balls and milk chocolate malt balls.”

It’ll be available for a limited time in about 30 percent of stores that carry Ben & Jerry’s ice cream.